Financial Markets Remain in Risk-Off Mode Amid Political Drama

The flight to safety in financial markets continued during today’s trading session as investors remained cautious amid the political drama in the White House stemming from last weekend’s events in Charlottesville, Virginia.  President Trump’s comments pertaining to the Charlottesville protests continue to alienate him from members of his own cabinet and has generated speculation that his chief economic advisor, Gary Cohn, may resign his post.  With increasing focus cast on the internal struggles within the Trump administration, the likelihood of a near term implementation of his campaign’s pro-growth policy planks continues to fade.  Also adding to the risk-off sentiment in markets, this afternoon a terrorist attack in Barcelona left 13 people dead and over 50 others injured.  
 
US stocks plummeted on the day, with major indices down 1.25%-1.95%, while Treasury prices climbed.  Yields/swap rates are currently down 1-5 bps across the curve, bringing the yield on the 10-year note below 2.19%.  In commodities, gold futures increased 0.4% alongside a 0.5% gain in crude oil prices.  The US dollar surged early in the session following the release of the minutes from the ECB July policy meeting which dragged on the euro, but settled back later in the session to finish 0.2% higher against major currencies, weighed down by the turmoil in Washington.      

 

 

New economic data released today displayed mixed results, beginning with initial jobless claims declining by 12,000 last week to a seasonally adjusted 237,000 (240,00 expected).  The weekly figure was the lowest it has been since February and shifted the four-week moving average of new claims to 240,000.  Also detailed in the Labor Department’s report, continuing claims edged 3,000 lower to 1.953 million for the week ended August 5^th.  A separate report today showed US industrial production increasing 0.2% during the month of July, 0.2% lower than June’s performance and slightly below expectations of +0.3%.  Unexpected weakness was recorded in the manufacturing component, which declined 0.2% MoM as motor vehicle production slowed 3.6% in July.  Factory output has now declined in two of the past three months and has risen a modest 1.2% over the past year.